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Tidewater Government Industry Council
Contract Pricing and Pricing
Strategies
Beverly Arviso, CPA, CPCM, CFCM, NCMA Fellow
Arviso, Inc.
beverly@arvisoinc.com
757-373-9536
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Learning Objectives
Tidewater Government Industry Council
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Planning the Pricing Strategy
Understanding the Requirements
Cost or Pricing Data
Price Analysis
Cost Analysis and Cost Realism Analysis
Indirect Rates and Competitive Rate Strategies
Best Practices
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
www.tasc-tgic.org
Planning the Pricing Strategy
Tidewater Government Industry Council
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Identify core business areas and what opportunities
to pursue
Develop a bid/no bid decision process
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Develop a Bid and Proposal (B&P) budget
Start the proposal activity early in the process
Identify the proposal team
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Internal and external parties
FAR 52.219-14 Limitation on Subcontracting
Teaming Agreements
Non-Disclosure Agreements
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
www.tasc-tgic.org
Planning the Pricing Strategy
Tidewater Government Industry Council
• Develop a proposal schedule
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Prepare a compliance matrix
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Include due dates for the pricing team
Include assignments and responsible author with clear due
dates
Schedule kick-off meeting with teaming partners
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
www.tasc-tgic.org
Understanding the Requirements
Tidewater Government Industry Council
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Obtain a clear understanding of the requirements
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Read the solicitation (and read it again, and again, and
again…..)
Determine the contract type(s)
Section B, Supplies or Services and Prices/Cost
Section C, Statement of Work
Section L, Instructions, Conditions, and Notices to Offerors
Section M, Evaluation Factors for Award
Clarifications, discussions, and negotiations
Evaluated price vs. proposed price
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Understanding the Requirements
EDUCATION
Tidewater Government Industry Council
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Pricing Policy (FAR 15.402)
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Contracting Officers SHALL:
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Purchase supplies and services from responsible
sources at fair and reasonable prices
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may require certified or other than cost or pricing data to
make that determination
Price each contract separately and independently
NOT include any amount for a specified contingency to
the extent that the contract provides for a price
adjustment based on the occurrence of that
contingency
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TIDEWATER ASSOCIATI0N OF SERVICE CONTRACTORS
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Cost or Pricing Data
EDUCATION
Tidewater Government Industry Council
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Policy on cost or pricing data
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Do not obtain more information than necessary
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Data collection and preparation is expensive
Order of preference for type of data required
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No additional information is needed if the price is based
on adequate price competition
Information other than cost or pricing data
(Certified) cost or pricing data
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Cost or Pricing Data
Tidewater Government Industry Council
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Cost or pricing data (defined at FAR 2.101):
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Factual, not judgmental and are verifiable
More than just historical data, cost or pricing data includes
all the facts that can be reasonably expected to contribute
to the soundness of estimates of future costs and to the
validity of determinations of costs already incurred
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Cost or Pricing Data
EDUCATION
Tidewater Government Industry Council
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Cost or pricing data (defined at FAR 2.101):
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Include, but not limited to, such factors as
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Vendor Quotes;
Nonrecurring costs;
Information on changes in production methods and in production or
purchasing volume;
Data supporting projections of business prospects and objectives and related
operations costs;
Unit-cost trends such as those associated with labor efficiency;
Make-or-buy decisions;
Estimated resources to attain business goals; and
Information on management decisions that could have a significant bearing
on costs.
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
www.tasc-tgic.org
Cost or Pricing Data
Tidewater Government Industry Council
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Threshold for requiring certified cost or pricing data
is >$700,000
Exceptions to certified cost or pricing data
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Prices are based on adequate competition
Prices agreed upon are based on prices set by law or
regulation
Commercial item acquisitions
When a waiver is granted
When modifying a contract or subcontract for
commercial items
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Cost or Pricing Data
Tidewater Government Industry Council
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Other circumstances where certified of cost or pricing
data are not required
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Exercise of an option at the price established at
contract award or initial negotiation
Proposals used solely for overrun funding or interim
billing price adjustments
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
www.tasc-tgic.org
Price Analysis
Tidewater Government Industry Council
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Examination and evaluation of a proposal without
evaluating each separate cost element or proposed
profit
Always involves some form of comparison
Competition in the market determines the price to be
fair and reasonable
Price analysis is required in every acquisition
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Price Analysis
Tidewater Government Industry Council
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Price Analysis Techniques
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Comparison to other proposals received
Comparison of previously proposed prices for the
same or similar items or service
Commercial items or services
Prices set by law or regulation
Catalog prices
Independent Government Cost Estimates (IGCE)
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
www.tasc-tgic.org
Price Analysis
Tidewater Government Industry Council
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Price Analysis alone may not be sufficient for
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Sole source procurements, including FFP
Modifications or changes to existing contracts
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TIDEWATER ASSOCIATI0N OF SERVICE CONTRACTORS
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Cost Analysis and Cost Realism Analysis
Tidewater Government Industry Council
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Cost Analysis
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The review and evaluation of separate cost elements
and profit or fee proposed to determine a fair and
reasonable price or to determine cost realism, and
The application of judgment to determine how well the
proposed costs represent what the cost of the contract
should be assuming reasonable economy and
efficiency
TASC
TIDEWATER ASSOCIATI0N OF SERVICE CONTRACTORS
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www.tasc-tgic.org
Cost Analysis and Cost Realism Analysis
Tidewater Government Industry Council
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Cost Analysis Techniques
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Verification of cost or pricing data and evaluation of cost elements
Evaluate the effect of the offeror’s current practices on future
costs
Compare costs proposed for individual cost elements
Verification that the offeror’s cost submissions are in accordance
with FAR Part 31 and CAS (if applicable)
Review to determine whether any cost data or pricing data,
necessary to make the proposal suitable for negotiations, have
not been either submitted or identified in writing by the offeror
Analysis of the results of any make-or-buy program reviews, in
evaluating subcontract costs
TASC
TIDEWATER ASSOCIATI0N OF SERVICE CONTRACTORS
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Cost Analysis and Cost Realism Analysis
Tidewater Government Industry Council
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Cost realism means that the costs in an offeror’s
proposal
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Are realistic for the work to be performed,
Reflects a clear understanding of the requirements,
and
Are consistent with the various elements of the
Offeror’s technical proposal
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TIDEWATER ASSOCIATI0N OF SERVICE CONTRACTORS
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Cost Analysis and Cost Realism Analysis
Tidewater Government Industry Council
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Cost Realism Analysis
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Examination of proposed costs and/or prices to ensure
the price the government will pay is consistent with the
required contract effort
Performed on cost reimbursement contracts to
determine the most probable cost of performance for
each offeror
May differ from the proposed cost and should reflect
the Government’s best estimate of the cost of any
contract that is most likely to result from the offeror’s
proposal
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Cost Analysis and Cost Realism Analysis
Tidewater Government Industry Council
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Two Objectives of Cost Realism Analysis
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Determine if the proposed cost/price realistically
reflects the effort required to perform the contract
Consider the risk in the award decision, i.e., if the
offeror refuses to support the realism of the estimates
and refuses to make changes, the contracting officer
must assess the risk to the Government when making
the award decision
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Indirect Rates and Competitive Rate Strategies
Tidewater Government Industry Council
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Direct Costs
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Indirect Costs
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Direct labor
Subcontract Costs
Travel
Material
Other Direct Costs (ODCs)
Fringe
Overhead
General and Administrative (G&A)
Unallowable Costs
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Indirect Rates and Competitive Rate Strategies
Tidewater Government Industry Council
Indirect Rate Calculation = cost pools/allocation base
• Pools are defined by placing costs in logical
groupings, e.g., fringe costs, overhead costs, G&A
costs, unallowable, etc.
• The allocation base is defined as some measure of
cost that can be used to allocate the pool cost, e.g.,
direct labor hours, direct labor dollars, machine
hours, etc. Cost Pools
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TIDEWATER ASSOCIATI0N OF SERVICE CONTRACTORS
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Indirect Rates and Competitive Rate Strategies
EDUCATION
Tidewater Government Industry Council
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Indirect Rate Development
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Develop estimate on an account by account basis
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Identify increases in direct and indirect wages
Identify increases to statutory fringes based on
increased wages
Additional 401k, medical, dental, vision, worker’s
compensation
Additional office space, dues and subscriptions,
training, phones, etc.
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Indirect Rates and Competitive Rate Strategies
Tidewater Government Industry Council
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Indirect Rate Development Cont’d
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Provide forecast of indirect rates for all years,
converted from contractor fiscal year to contract year
Explain how indirect costs and rates are computed
Explain how indirect rates are applied
Provide cost breakdowns, trends, and budgetary data
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Indirect Rates and Competitive Rate Strategies
Tidewater Government Industry Council
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Create multiple fringe rates
Create service centers
Create multiple overhead rates
Change from total cost input G&A to value added
G&A
Redefine the treatment of costs from indirect to direct
Rate ceilings
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Best Practices
Tidewater Government Industry Council
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Read RFP carefully to ensure it doesn’t violate CAS
or FAR
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G&A on travel is allowable if it is consistent with the
offeror’s accounting practices
Review solicitation website often for changes
Prepare, update, and delivery proposal using a
compliance matrix that is updated as changes to the
solicitation are made
Clearly align technical proposal with cost/price
proposal
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Best Practices
Tidewater Government Industry Council
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Reduce math errors or inconsistencies in the cost/price
proposal by
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Using rounding
Use of an independent party to verify cost proposal on a
calculator
Negotiate proper subcontract types
Beware of fixed fee dilution
Be audit ready
Due date/time
Pricing resource:
http://www.acq.osd.mil/dpap/cpf/contract_pricing_referenc
e_guides.htm
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Questions
Tidewater Government Industry Council
Beverly Arviso, CPA, CPCM, CFCM, NCMA
Fellow
Arviso, Inc.
beverly@arvisoinc.com
757-373-9536
TASC
TIDEWATER ASSOCIATI0N OF SERVICE CONTRACTORS